Friday, May 1, 2015

The latest version of the Household Debt and Credit Report from the New
York Federal Reserve Bank shows that household debt levels continue to rise,
reaching their highest level in the fourth quarter of 2014 since the Great
Recession.

Here is a graph showing total household debt,
broken down into both non-housing debt (in red) and housing debt (in blue):

In the fourth quarter of
2014, total household indebtedness was $11.83 trillion, up $117 billion from
the third quarter but still below the third quarter of 2008 when household debt
hit a peak of $12.68 trillion.

One debt area that has
seen significant growth is auto loans. As shown on this graph, during
2014, the value of newly originated auto loans (in red) has reached levels not
seen since 2005 - 2006:

In contrast, the value of
newly originated mortgages (in blue) has fallen well below levels seen in 2012
and 2013 and remains at levels that are quite low by historical standards.

Now, let's look at the
loan delinquency statistics. Here is a graphic showing the total
percentage of loans that are delinquent as well as those that are current (in
dark green):

It is interesting to see
that, at 6 percent, the percentage of loans that are delinquent is still
significantly higher than it was prior to the Great Recession. About
$710 billion of outstanding consumer debt was considered delinquent in the
fourth quarter of 2014 and, of that, $507 billion is seriously delinquent.
As well, during the fourth quarter of 2014, 268,000 American consumers
had a bankruptcy notification added to their credit reports.

Here is a breakdown of
loan types and what percentage were 90 days or more delinquent in the fourth
quarter of 2014 and how the percentages compare to the previous quarter:

Mortgage delinquencies:
3.1 percent (down from 3.2 percent)

Student loans: 11.3
percent (up from 11.1 percent)

Auto loans: 3.5 percent
(up from 3.1 percent)

Here is a graphic showing
the volume of new seriously delinquent loans by type for the fourth quarter of
2014:

Now, let's look at a couple of
debt problem areas.

1.) Student Loans: The most obvious change over the past few years has
been the growth in the level of seriously delinquent student loans which, as I
noted above, has now reached 11.3 percent. This is problematic because,
after mortgages, student loans make up the biggest fraction of total consumer
loans. What is of even greater concern is that the Fed's delinquency rate
for student loans probably understates the real scope of the problem since
about half of the student loans are still in deferment, the grace period that
temporarily removes them from having to make payments. According to the St. Louis Federal Reserve Bank, the total student
loan delinquency problem (i.e. delinquencies of all types) is even worse as shown on this graphic:

In the fourth quarter of
2014, 17.9 percent of student loans were 30 days or more delinquent. This will have long-term repercussions for the U.S. economy since many of these younger Americans will enter the housing market much later than their older counterparts.

2.) Credit Card Debt: Another concerning factor
about consumer debt is the growth in credit card debt. Here is a graph
showing the annual net growth in consumer credit card debt for the years
between 2009 and 2014:

According to CardHub, consumers ended up 2014 with a $57.1
billion net gain in credit card debt, the highest annual increase since the
Great Recession. The average household's credit card
balance was nearly $7200 at the end of 2014, very close to the tipping point of
$8300, the danger level defined by CardHub as being unsustainable. One
thing that is lulling consumers into higher levels of credit card debt is low
interest rates. As shown on this graph, at 11.8 percent, the interest rate
on consumer credit cards is just above the lowest levels that have been seen
over the past two decades:

Thanks to the Federal Reserve,
the lengthy period of ultra-low interest rates has lulled American consumers
into what could prove to be a very painful debt trap. While consumer debt
delinquency rates are below their Great Recession highs, they are still quite
elevated compared to the years before 2008 and any increase in interest rates
on the growing levels of outstanding consumer debt could prove to be very
painful to America's consumer-driven economy.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.